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Wednesday, February 15, 2017

Health Prices Rose Two Thirds Less Than CPI

The Consumer Price Index rose 0.6 percent
in January, while medical prices rose only 0.2 percent. This is the fifth
month in a row we have enjoyed medical price relief in the CPI. Even
prices of prescription drugs rose by only 0.3 percent. Prices of three
components – medical equipment and supplies, dental services, and care of
invalids and elderly at home even dropped. No category rose more than 0.1
percentage point more than all item CPI. Medical price inflation contributed
only three percent of CPI for all items.

Over the last 12 months, however, medical
prices have increased much more than non-medical prices: 3.9 percent versus 2.4
percent. Price changes for medical care contributed 13 percent of the overall
increase in CPI.

See Figure I and Table I below the fold:

Many observers of medical prices decline
to differentiate between nominal and real inflation. Because CPI is has been
low until recently, even relatively moderate nominal price hikes for medical
care are actually substantial real price hikes. More than six years after the
Affordable Care Act was passed, consumers have not seen relief from high
medical prices, which have increased over twice as much as the CPI less medical
care since March 2010, the month President Obama signed the law.

We can only hope the last five months have
established a new trend that will improve even more once Obamacare is repealed
and replaced with a reform that allows more price competition.